Long-Term Obligations and the Texas Legacy Fund Deferred Maintenance for State-Owned Buildings

Published October 2018

Deferred maintenance refers to the postponement of maintenance activities (such as repairs, retrofitting or replacement) for buildings, equipment and systems due to a lack of sufficient funding. Deferring maintenance isn’t uncommon in times of tight budgets, but a growing maintenance backlog can lead to inefficiencies, safety hazards, poor customer service and higher eventual costs.

The costs related to the state’s deferred maintenance backlog reflect the compounding effect of postponement from one year to the next, similar to the interest on debt. When maintenance is postponed, repair and replacement costs become higher in future years due to the accelerated deterioration of known deficiencies, the accumulation of new problems and the rising cost of repair and construction.

State deferred maintenance projects often require several years to complete, yet their funding is appropriated on a biennial basis. New deficiencies can arise and the state of current deficiencies can change greatly between the development of an appropriation request and the beginning of a project. Unplanned budget spikes can result if a deferred maintenance item becomes an emergency.

Historically, Texas has funded deferred maintenance projects primarily through general revenue appropriations and the issuance of general obligation bonds. Funding for unplanned, emergency projects, by contrast, usually comes from the remaining balances of recently completed projects, interest earned on bond proceeds, utility appropriation balances and, most commonly, the diversion of funding from planned deferred maintenance projects.

In 2015, after years of deferring maintenance for state-owned buildings, Texas established a master plan for state facility maintenance and created a special fund to address deferred maintenance issues.⁴²

Funding

In 2015, six state agencies were appropriated nearly $500 million for fiscal 2016-17 deferred maintenance projects (Exhibit 8). As of June 2018, more than $34 million of this amount (or 6.9 percent of the total) had not yet been spent or “encumbered” (slated for spending on specific projects).⁴³

Exhibit 8: June 2018 Balances, Deferred Maintenance Projects Approved for Fiscal 2016 and 2017

Agency	Current Estimated Project Budget	Fiscal 2016 and 2017: Encumbered	Fiscal 2016 and 2017: Expended	Remaining Project Balance	Percent Remaining
Department of Public Safety	$38,778,877	$1,566,407	$22,386,298	$14,826,172	38.2%
Texas Military Department*	$19,559,181	$3,598,556	$15,960,625	0	0.0%
Texas Parks and Wildlife Department	$88,983,987	$27,114,080	$61,869,907	0	0.0%
Texas Department of Criminal Justice	$67,380,574	$12,519,249	$54,861,325	0	0.0%
Texas Facilities Commission	$217,156,348	$126,972,112	$70,598,080	$19,586,156	9.0%
Texas Department of Transportation	$67,198,859	$10,266,705	$56,932,154	0	0.0%
Totals	$499,057,826	$182,037,109	$282,608,389	$34,412,328	6.9%

* Facilities of the Texas Army National Guard, Texas Air National Guard and Texas State Guard.

Source: Texas Joint Oversight Committee on Government Facilities

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In 2017, the Legislature appropriated nearly $459 million of additional deferred maintenance funding to 11 agencies for fiscal 2018 and 2019.⁴⁴ In addition to general revenue and general revenue-dedicated funds, the 11 agencies also received more than $602 million from the ESF for health and safety repairs. Of this amount, $130 million was appropriated specifically for deferred maintenance projects, while $160 million was appropriated for “critical repairs” at state hospitals and living centers. The Texas Facilities Commission (TFC), which manages facilities for more than 100 state agencies, received $90 million from the ESF.⁴⁵

As of June 2018, state agencies had reported more than $449 million of deferred maintenance needs for the 2018-19 biennium to the Joint Oversight Committee on Government Facilities (Exhibit 9).⁴⁶ As of that month, more than $15 million had been spent and $41 million was encumbered, leaving a total available deferred maintenance balance of $393 million.

Exhibit 9: June 2018 Balances, Deferred Maintenance Projects Approved for Fiscal 2016 and 2017

Agency	Current Estimated Project Budget	Fiscal 2018 and 2019: Encumbered	Fiscal 2018 and 2019: Expended	Remaining Project Balance	Percent Remaining
Department of Public Safety	$12,000,000	$668,416	$384,047	$10,947,537	91.20%
Texas Military Department*	$10,303,638	$1,459,178	$540,680	$8,303,780	80.6%
Texas Parks and Wildlife Department	$66,185,665	$3,546,695	$3,614,331	$59,024,639	89.2%
Texas Department of Criminal Justice	$41,996,216	$8,095,662	$3,274,498	$30,626,056	72.9%
Texas Facilities Commission	$90,000,000	$11,037,884	$401,839	$78,560,277	87.3%
Texas Department of Transportation	$50,000,000	$4,756,121	$2,898,353	$42,345,526	84.7%
Texas Historical Commission	$6,350,000	$2,322,701	$2,052,656	$1,974,643	31.1%
State Preservation Board	$4,700,000	$212,920	$42,881	$4,444,199	94.6%
Department of State Health Services	$1,800,000	$36,852	0	$1,763,148	98.0%
Health and Human Services Commission – State Hospitals	$79,059,077	$5,255,557	$1,540,033	$72,263,487	91.4%
Health and Human Services Commission – State-Supported Living Centers	$74,567,911	$3,538,609	$285,675	$70,743,627	94.9%
Juvenile Justice Department	$12,100,000	$539,294	$54,963	$11,505,743	95.1%
Totals	$449,062,507	$41,469,889	$15,089,956	$392,502,662	87.40%

* Facilities of the Texas Army National Guard, Texas Air National Guard and Texas State Guard.

Source: Texas Joint Oversight Committee on Government Facilities

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Harvey Effects

Hurricane Harvey, which made landfall near the end of fiscal 2017, impeded a number of state deferred maintenance projects along the Texas coast. During an October 2017 hearing before the Texas Joint Oversight Committee on Government Facilities, several agencies detailed the challenges posed by Harvey’s destruction and the need for flexibility in the use of deferred maintenance funds for Harvey-related repairs. In response, the committee asked agencies to notify it ahead of time before using deferred maintenance funding for recovery efforts.

The Oversight Committee chair emphasized that agencies should consider whether properties with deferred maintenance projects have a historical pattern of repeated damage from natural disasters. He also said the committee eventually should decide whether such properties — particularly those damaged as often as every three to five years — should continue receiving deferred maintenance funding.⁴⁷

Policy Options

One obvious source of additional deferred maintenance funding is the state’s Economic Stabilization Fund. As noted above, the Legislature tapped the ESF for deferred maintenance funding in 2017.⁴⁸

During that session, other bills related to use of the ESF for deferred maintenance were discussed. House Bill 1498, for instance, would have appropriated $500 million from the ESF for deferred maintenance and repairs at institutions of higher education. The bill didn’t pass, however.⁴⁹

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Related:

• Texas State Government and Long-Term Obligations (March 2017)
• 2017 Legislative Wrap-Up (September 2017)
• The Fiscal Noting Process (January 2017)
• Hurricane Harvey and the Texas Economy: Economic Impact (February 2018)